In the next few weeks, I will share my perspectives on how and why the next 60-months will prove to be the most disruptive in our industry's history and will suggest seven strategic principles for successfully navigating through this period.
Marketers Will Continue to Desire Premium High Quality TV and Video Content
Below-the-Line Promotional Budgets are the Future of Above-the-Line Media Companies
Performance-Based Metrics Will Gain in Importance, but Very Slowly and Selectively
Procurement-Based Pricing will Gain Importance, and Very Quickly and Widely
Marketers will Invest in Innovative Native Content and Cause-Based Marketing Solutions
Success Depends on Rapid Deployment of Visionary Distribution, Organizational and Business Models
A Gender Diverse and Multi-Cultural Workforce is Essential to Future Success
The Future Media Industry – Founding Principle #1
Marketers Will Continue to Desire Premium High Quality TV and Video Content
Differentiated, professionally produced, sustainable, networked video content with high sponsorship value will be desired by marketers to support their tent-pole promotional and marketing platforms. Led by sports and high visibility entertainment events, network television will continue, into the foreseeable future, to be the engine that pulls the advertising train. But the continued growth and sustainability of TV networks and studios depend on their ability to increase the profit-margins of high-quality, high-engagement, marketer-friendly video content. The business models of primetime network television have historically relied on packaging of inventory across high-demand and low-demand inventory, and relying on overall demand equaling or exceeding overall available supply. Expensive primetime content is essentially a loss-leader, pulling customers into the network "store" and requiring them to load their carts with a spectrum of inventory, enabling the networks to package high-margin inventory with the loss-leaders.
There are four problems with this model. First, we know supply is increasing while demand is stable or declining.
Second, marketers are shifting aggressively toward procurement-based pricing that will drive down costs wherever there is competitive over-supply. The supply of TV and video inventory is growing and demand is declining, so the ability of networks to offset the costs of their premium content will diminish as marketers and agencies force a more unit-specific pricing model. Advances in programmatic and automated trading will accelerate this new reality.
Third, marketers have more opportunities to align themselves with premium content from a growing base of alternative suppliers, and TV networks are no longer their only option. Amazon, Apple, Netflix, Hulu, Yahoo, AOL and a growing cacophony of distribution partners are investing in a diverse range of programs available to meet marketers' tent-pole promotional interests, ad messaging requirements and enhanced return-on-investment needs. Even sports sponsorship and advertising opportunities are expanding.
Fourth, while the demand for premium high quality, professionally produced video content will be one of the few sectors of the media marketplace where demand will intensify, the rights fees, talent costs and production demands will increase exponentially. The traditional deficit financing and packaging models on which networks and studios have relied will no longer work. New revenue models must be developed, implemented and proven.
The Future Media Industry – Founding Principle #2
What is the Future of Media Buyers & Sellers?
Every major media company, agency and leading national advertiser is seeking solutions for emerging and very serious threats, as underlined by the dire economic forecasts published last week by MyersBizNet . In times of accelerating change and marketplace chaos, companies that fail to aggressively adapt are likely to be passed by competitors who respond forcefully to meet the challenges of the future. Rather than buying and selling impressions and Nielsen rating points, agencies and media sellers need to define a clear and immediate strategy for reinventing their business development and marketing communications. They must identify, advance, implement and effectively communicate business development programs to generate incremental and scalable revenues.
Legacy media companies are under attack as new business models built on expanded supply, programmatic systems, procurement requirements, and new metrics are gaining traction and critical mass. With varying degrees of bravado, investment and reorganization, they are advancing into an unknown future with shields raised and swords unsheathed. They are charging forward, blinded by a digital sun in their eyes, hoping to sustain their traditional hold on the future and slay whatever dragons may appear. To date, this has been an effective strategy: audiences, marketers and Wall St. are following behind. Ahead in the not too distant future, however, are unseen heights to scale, turbulence to survive, and perilous cliffs from which a fall could be fatal.
Are media companies, content producers, agencies, research providers and marketers responding with sufficient speed and vision to the changing media ecosystem? Media companies are trying, building and reacting. But are they truly preparing for the collapse of foundational business models that have served the media industry for more than half a century and are no longer reliable for sustainable growth.
While several media companies, agencies and marketers are responding aggressively to the growing reality of these threats, few if any are prepared for the probability of a free-fall collapse of legacy business models. While corporate leaders from the big media companies, agencies and hot digital players introduce innovative business offers, tests, collaboratives, tools and new organizational structures, there is no evidence that more than a handful of them are truly prepared to confront and survive the dangers that lie ahead. The winners and losers for the next several decades will be decided based on their decisions in the next 48-months, the aggressiveness and determination with which they make and act upon their decisions, and how visionary they prove to be.
Traditional media investments will be focused on achieving greater cost efficiencies and capitalizing on the shift in supply/demand dynamics. Fundamentally, the primary purpose of these budgets will remain yesterday's goals of awareness, reach, frequency and cost efficiencies, with automated/programmatic systems being the primary tool for more effective implementation, resulting in downward pricing pressure on media suppliers.
Principle #2 of the Seven Founding Principles of the Future Media Industry is that below-the-line promotional budgets are the future of above-the-line media companies.
Marketers will shift tomorrow's budget share to media partners that are most able and willing to develop and implement promotional, shopper marketing and brand-centric programs. As technology is put in place to manage transactional planning and buying, media agencies will shift their creative and human resources to enhanced relationships with those media partners that offer scale, quality content, valued audiences, multi-platform media integration and measurement, promotional resources, and specialized teams to service and support these initiatives.
Media companies, marketers and agencies, to maintain and grow market share, need to invest today in tomorrow's growth opportunities and business models. They need to proactively identify and develop incremental and scalable revenue sources accompanied by a restructuring of their organizations to support these new business models.
The Future Media Industry – Founding Principle #3
Performance-Based Metrics Will Gain in Importance, but Very Slowly.
Among the MyersBizNet Seven Founding Principles on which media companies, agencies, marketers and content producers must focus to maintain long-term growth and achieve sustainable success, #3 is Performance-Based Metrics Will Gain in Importance, but Very Slowly and Selectively.
There is a definitive and growing trend in network TV toward increased use of performance-based metrics and toward data driven, audience targeting offerings by media companies and agencies. Research – both proprietary and media-funded – is influencing the market share of media companies that are engaging in this process, providing relevant research, and delivering more targeted reach as a result. But the shift of dollars based on this research is primarily driving share decisions within the television industry, and is not reversing the growing transfer of budgets from TV to digital video. The actual influence of qualitative performance-based research on national TV buying decisions is growing, impacting an estimated 1% to 5% of total Upfront buying, varying by agency and client; aggregated Upfront spending influenced by performance-based research data in this year's Upfront market is unlikely to surpass 3% of the total.
Although there are studies that question the effectiveness of digital advertising, and P&G is reported to be reallocating budgets back into TV, this research is not overcoming marketers' pressure to capture share-of-voice in digital video media, and demand for quality digital video is increasing at a rate faster than supply. (Of all the advertisers in the national marketplace, P&G is arguably the least appealing to TV nets because of their historically low institutional rates.)
While media sellers can assure themselves a more competitive position in Upfront negotiations if they are delivering performance-based metrics, the basic currencies of negotiation (age/gender demographics, reach/frequency, GRPs and CPMs) are unchanged and there is little evidence that Upfront negotiations will change in a meaningful way in the foreseeable future.
For the 2017/18 Upfront market, we envision 8% to 15% of total network TV investments being impacted by network-funded performance-based metrics, and such data is unlikely to either reverse the flow of dollars to digital video, including mobile, or attract new budgets to television from other media. However, larger shares of a specific TV network company's budget could be influenced for specific clients, with as much as 25% of an Upfront budget with a specific network being allocated based on new performance-based metrics.
One TV advertiser summed up the consensus view of client executives: ""We want to keep as much of our budget as possible in the reach bucket and be judicious in how much inventory goes into engagement – engagement requires a business plan – spend, KPIs, business impact; a prior discussion is required when budgets go from reach to engagement or performance." While investments based on performance metrics will grow, such research is unlikely to reverse secular declines in the national TV marketplace.
Next in our Report on the Seven Founding Principles of the Future Media Industry: Procurement-Based Pricing will Gain Importance, and Very Quickly and Widely